Are all Monopolies Bad?

 Are all Monopolies Bad? 

Afra Azim

Some people believe that monopoly power is not a good thing. It can lead to exploitative behaviours within the business and the market, such as unfair prices, fewer choices for consumers and even power affecting other sectors of the economy e.g. lobbyists. However, some monopolies are not inherently bad. They can actually be beneficial to consumers, providing that their interests also support the consumers. This blog post will define monopolies and list the benefits and examples of them that benefit the economy. 

A monopoly is defined as a sole company that holds most of the market share. They produce majority of that specific good/service in that market and is allowed to charge any price they want as long as it is within the demand curve. The barriers to entry are very high due to the monopoly having access to economies of scale e.g. cheaper materials and resources. Because a monopoly, like all market structures, want to maximise profits, it operates where Marginal Cost equals to Marginal Revenue (MC=MR), shown below in the diagram.  

monopoly-diagram-2017 

(Source: Economics Help) 

The orange highlighted shows the supernormal profit gained and can keep due to the high barriers to entry. However, the blue part shows the deadweight loss, as operating at MC=MR makes price larger than marginal costs, so consumer surplus shrinks, creating an inefficient allocation of resources.  

Despite this, there are some benefits of monopolies in an economy. Firstly, prices can remain stable (at MC=MR), because there is no competition in the market, so there won’t be any volatility in the market for prices e.g. from price wars or cartel formations. This benefits consumers because they can expect a stable price as the supply is controlled mainly by one large firm. This also links to having a stable economy, where having too much competition leads to chaos within the market, producing duplicates of the same good, which would lead to more wastage of resources compared to only one firm producing that product.  

Another benefit of monopoly is investments. Assuming that a company has a long-term goal for the business (rather than short term gains from shareholders), monopolies can use their supernormal profits to invest money into their business, improving the quality of their products. They can plan long-term without having to worry about changes in the market.  

An example of a monopoly that benefits consumers is the National Grid in the UK. This company has a monopoly over electricity and gas transmission. This allows stable and reliable supply of energy to the country, without having to compete with other providers. Additionally, they can invest in new technologies to improve the UK’s energy sector. For example, National Grid currently invests in £1.3 Billion yearly to adapt and develop their transmission network to connect new sources of low carbon and green energy. (National Grid, 2025). 

In conclusion, despite monopolies having a bad perception, monopolies do have their positives and can support consumers and the economy through investments, price and market stability, with examples like National Grid.  

References: 

https://www.economicshelp.org/microessays/markets/monopoly-diagram/  
https://www.nationalgrid.com/electricity-transmission/network-and-infrastructure/infrastructure-projects 

About the author

Afra Azim is a 2nd Year Business Management student studying at Queen Mary, University of London. Her interests are in microeconomics, especially market structures. She is also interested in business analytics, which she wishes to pursue in the future. Her email address is here: a.azim@hss24.qmul.ac.uk

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